Cardinal Ethanol biorefinery up for sale

The Cardinal Ethanol plant near Union City is up for sale.(Photo: The Star Press file photo)

UNION CITY, Ind. — Cardinal Ethanol, a 10-year-old grassroots biorefinery that produced about 131 million gallons of ethanol last year, might be sold.

In a press release, the company said that after consulting financial adviser Ascendant Partners to assist in strategic planning, Cardinal Ethanol's board of directors "has decided to explore the potential sale of the facility to obtain a profitable return of capital to the original investors and transition the ownership to an operator with the capacity and resources to ensure the plant is best positioned for long-term success."

Michael Hicks, an economist at Ball State University, speaking of the press release, said, "Insofar as I can tell … Cardinal is looking to sell itself because some of the original investors are displeased with its profits."

Wally Tyner, an agricultural economist at Purdue University, noted that, according to the press release, "the expectation is that the plant would continue to operate whether it is sold or not. If that is true, the impact on the local community and farmers supplying the plant should be minimal."

The independently owned/operated standalone plant buys tens of millions of bushels of corn ever year to produce the ethanol.

"In the last few months, net returns over all costs have been negative for a prototypical ethanol plant …, " Tyner told The Star Press. "Thus, it is possible management decided it would be a good time to try to get a reasonable sale and return equity to owners."

Scott McDermott, a partner at Ascendant Partners, called Cardinal Ethanol "a good company," "very successful" and "a top-tier asset." "It's literally one of the most profitable plants in the ethanol industry," he said.

In its latest annual report filed with the U.S. Securities and Exchange Commission, Cardinal Ethanol reported net income of $7.6 million for fiscal year 2018, compared to net income of more than $13 million in both 2017 and 2016; $38.7 million in 2015; and $87.2 million in 2014.

"The board is at a place where they have reached a lot of their goals with the business, and they know to continue to be competitive they have to continue to put more money in the business," McDermott told The Star Press. If the board gets an offer commensurate with the facility's value, "they would consider selling," he went on. "Otherwise, they will continue to run it the way they have been … They have a lot of shareholders."

It is a tough time in the ethanol market right now, and the ethanol industry is very competitive, but Cardinal is "doing well; they're a good business," McDermott said.

Buy Photo

The Cardinal Ethanol plant near Union City is up for sale. Star Press file photo.(Photo: Jordan Kartholl / The Star Press)

The nation's 210 ethanol plants located across 27 states produced 16.1 billion gallons of "clean-burning renewable ethanol" in 2018, including record exports of 1.6 billion gallons, the industry's trade group, Renewable Fuels Association (RFA), reported in its 2019 Ethanol Industry Outlook.

"Domestic demand also seemed destined for record levels … but as word of EPA's indiscriminate use of small refinery exemptions from the federal Renewable Fuel Standard spread, domestic usage fell precipitously, hitting a four-year low," the outlook reported.

According to Cardinal's annual report, the principal markets for its ethanol are petroleum terminals in the northeastern United States. About 95 percent of all ethanol is used for blending with unleaded gasoline and other fuel products.

Cardinal operates in an "intensely competitive industry" with larger, better-financed entities, including oil companies that have bought ethanol plants and large ethanol producers that are consolidating a larger portion of domestic production, the annual report says.

Cardinal was forced to shut down for several days this past November after an explosion in one of its grain silos.

Whether the plant is sold or not, the press release said, the company expects it will continue to operate and process local corn.

"If Cardinal Ethanol is not able to identify a buyer willing to acquire the assets at acceptable values and terms, Cardinal Ethanol expects that it will proceed with a separate strategy which may range from continuing to operate the business as an independent operator, scaling the business through mergers or acquisitions and investing in new technology to continue the superior performance of the business," the press release said.